On January 22, New York Attorney General Letitia James announced a $1 billion settlement with a now defunct cash advance firm and its officers. The settlement resolves allegations that the firm and its officers repeatedly engaged in fraudulent and deceptive predatory lending practices aimed at small business owners in violation of New York law. 

The lawsuit alleges that the firm and its network of affiliated companies engaged in a range of deceptive lending practices. These alleged transgressions included misrepresenting the true cost of financing by disguising high-cost loans as merchant cash advances, which often led to small business owners to believe they were not taking on debt. The lawsuit also claimed the firm charged unreasonable interest rates, frequently exceeding 100%, and imposed hidden fees. These practices allegedly trapped borrowers in debt cycles, making it difficult for them to sustain their businesses. The firm was also accused of employing aggressive and harassing debt collection tactics, including threats and intimidation, which led to significant distress to small business owners.

Specifically, the settlement requires the firm to:

• Forgive debts of affected small businesses. Over $534 million of outstanding debt owned by more than 18,000 small businesses nationwide will be canceled.
• Pay restitution to affected small business owners. $16.1 million will be paid immediately for distribution to borrowers who were harmed by the firm’s practices.
• Settling officers to pay a fine. The settling officers agree to pay a fine of $12.7 million dollars.

The company and its officers are also permanently banned from the merchant-cash advance industry.

Putting It Into Practice: This state-level settlement underscores the importance of monitoring actions by state regulators, particularly during a period of potential shifts in federal regulatory authority (previously discussed here). Companies engaged in lending or debt collection practices should proactively review their policies and procedures to ensure compliance with state laws and regulations.

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